"We're a Delhi company, professional tax doesn't apply to us": What state law actually requires

A Bengaluru-registered private limited company hires eight engineers who work remotely from Noida, Jaipur and Indore. Payroll is run from a Delhi accountant's office. Nobody deducts professional tax, because "Delhi has no PT." Two years later a Karnataka Commercial Taxes officer issues a notice for unremitted professional tax on all eight salaries, plus interest at 1.25% per month and a penalty, because the company's registered establishment is in Karnataka and PT liability follows the establishment — not the employee's laptop.

This is the single most common payroll-compliance error we see in growing companies. Professional tax is small in rupee terms and capped at ₹2,500 per person per year. It is also one of the few taxes where the liability sits on the company as a statutory agent, the officer has near-zero discretion, and the arrears calculation is trivially easy for the department to run against your PF and TDS filings. Small tax, large exposure.

What the law actually requires

The constitutional source. Professional tax is levied under Article 276 of the Constitution of India, which permits a State or a local authority to tax "professions, trades, callings and employments." Article 276(2) caps the levy at ₹2,500 per person per financial year. That ceiling is absolute — no State can charge more, whatever the salary.

Because it is a State levy, there is no single Professional Tax Act. Each State has its own statute, for example:

• Karnataka — Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976
• Maharashtra — Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975
• Andhra Pradesh / Telangana — AP Tax on Professions, Trades, Callings and Employments Act, 1987 (adopted by Telangana on bifurcation)
• West Bengal — West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979
• Tamil Nadu — levied by municipal bodies under the Tamil Nadu Municipal Laws (Second Amendment) Act, 1998

Two registrations, not one. This is the distinction founders miss most often. Almost every PT State requires a company to hold two separate certificates:

• PTEC — Professional Tax Enrolment Certificate. This covers the entity's own liability. The company itself is a "person" carrying on a trade, and pays a flat annual amount (commonly ₹2,500) regardless of whether it has any employees. Directors in their personal capacity are frequently separately enrolled.
• PTRC — Professional Tax Registration Certificate. This makes the company an employer-deductor. Under PTRC you deduct PT from each employee's monthly salary and remit it to the State.

A company with zero employees still needs PTEC. A dormant company with PTEC and no filings still accrues the annual amount. This is why struck-off and dormant companies routinely surface PT arrears when they attempt revival.

Which States levy it. PT is levied in Karnataka, Maharashtra, Andhra Pradesh, Telangana, Tamil Nadu, Gujarat, West Bengal, Kerala, Madhya Pradesh, Odisha, Assam, Bihar, Jharkhand, Chhattisgarh, Meghalaya, Tripura, Sikkim, Manipur, Mizoram, Nagaland and Puducherry.

PT is not levied in Delhi, Haryana, Punjab, Uttar Pradesh, Uttarakhand, Rajasthan, Himachal Pradesh, Goa, Jammu & Kashmir, Ladakh, Chandigarh, Arunachal Pradesh and the Andaman & Nicobar Islands.

Indicative slabs (verify the current State notification before running payroll). Rates are amended by State notification, not by the annual Union Budget, so a rate you validated two years ago may have moved:

• Karnataka — nil up to a monthly salary threshold (recently raised to ₹25,000); ₹200 per month above it
• Maharashtra — nil up to ₹7,500 for men and ₹25,000 for women; ₹175 per month in the middle band; ₹200 per month above ₹10,000, with ₹300 charged in February so the annual total lands exactly at ₹2,500
• Andhra Pradesh / Telangana — nil up to ₹15,000; ₹150 and ₹200 per month in higher bands
• West Bengal — nil up to ₹10,000, rising in bands to ₹200 per month
• Madhya Pradesh — nil up to ₹18,750, rising in bands to the ₹2,500 annual cap

The nexus rule — where liability arises. PT attaches to the establishment on whose rolls the employee sits, not to the employee's physical location. If your registered office and payroll establishment are in Karnataka, Karnataka PT applies to a remote employee sitting in Rajasthan. Conversely, if you open a genuine branch office in Maharashtra, that branch needs its own Maharashtra PTRC — a Karnataka PTRC does not travel.

The practical trap for distributed teams: a company with a registered office in Bengaluru, a co-working desk in Mumbai and staff in five States needs PT registration in Karnataka and Maharashtra only — but must correctly map every employee to one of those two establishments and apply the right State's slab to each.

Practical implications

Interest and penalty. Rates are State-specific but consistently punitive relative to the tax:

• Karnataka — interest at 1.25% per month on unpaid tax, plus penalty of up to 50% of the tax due; failure to obtain enrolment attracts a separate penalty
• Maharashtra — interest at 1.25% per month; late-filing fee of ₹1,000 per return; penalty for non-enrolment commonly assessed at ₹5 per day of delay
• Andhra Pradesh / Telangana — interest at 2% per month on delayed remittance, plus penalty

The arithmetic that stings: a company with 20 employees at ₹200 per month accrues ₹48,000 of PT a year. Three years of non-compliance is roughly ₹1.44 lakh of tax, plus interest at 1.25% per month compounding across 36 months, plus penalty at up to 50%. The all-in exposure comfortably exceeds ₹2.5 lakh — for a tax nobody thought applied.

Deduction as a company expense — and the Income Tax overlay. PT deducted from an employee's salary is the employee's tax, allowable to the employee under Section 16(iii) of the Income Tax Act, 1961 as a deduction from salary income — but only under the old tax regime. Under the default new regime in Section 115BAC, the Section 16(iii) deduction is not available. The company's own PTEC payment remains deductible as business expenditure under Section 37(1).

Critically, PT deducted and not deposited is money the company holds in trust. Under Section 43B of the Income Tax Act, statutory dues are deductible only in the year of actual payment. Deducting PT from salaries and sitting on it costs the company the deduction and attracts State interest.

Where it surfaces during diligence. PT arrears do not stay quiet:

• Funding due diligence. Every payroll-compliance checklist a VC's diligence team runs asks for PTEC, PTRC, and 12 months of challans. Missing certificates become an indemnity or a holdback.
• Statutory audit. Unpaid statutory dues must be disclosed. Under Clause 3(vii) of CARO 2020, the auditor is required to report undisputed statutory dues outstanding for more than six months from the due date — professional tax is expressly within scope.
• Tax audit. Form 3CD Clause 26 captures the Section 43B position on statutory dues, making the arrear visible to the Assessing Officer.
• Strike-off and revival. A company applying under Section 252 of the Companies Act, 2013 for restoration after strike-off will be asked to clear State dues, including accumulated PTEC amounts for every dormant year.
• MCA21 v3. PT is a State levy and does not itself generate an MCA21 flag. But the CARO qualification lands in the AOC-4 attachment, and MCA21 v3's structured-data architecture makes an auditor's adverse remark on statutory dues persistently searchable against your CIN. The knock-on cost is reputational and shows up in bank and lender scrutiny long after the tax is paid.

Step-by-step: what to do

• Determine your PT States. List every location where the company has an establishment — registered office, branch, factory, warehouse, or a co-working space where employees are on the rolls of that location. Cross-check each against the levy list above. Do not use employee home addresses.
• Obtain PTEC for the entity in each PT State. Apply on the State's commercial tax portal (Maharashtra: mahagst.gov.in; Karnataka: pt.kar.nic.in; Telangana: tgct.gov.in). Documents typically required: Certificate of Incorporation, PAN, MOA/AOA, board resolution, address proof, and director KYC. Enrol directors separately where the State requires it.
• Obtain PTRC in each State where you have employees on the rolls. This is a distinct application from PTEC and is frequently forgotten by companies that obtained only PTEC at incorporation. Turnaround is usually 7–15 working days.
• Map every employee to one establishment and apply that State's slab. Build this into the payroll master, not a spreadsheet the accountant maintains separately. For Maharashtra, configure the February ₹300 adjustment explicitly — flat ₹200 for 12 months undershoots the statutory ₹2,500 and creates a small permanent arrear.
• Remit monthly or annually per your State's threshold. Maharashtra requires monthly remittance and monthly Form III-B returns where prior-year PT exceeded ₹1,00,000, and annual filing below that. Karnataka requires monthly remittance by the 20th of the following month with an annual return in Form 5A. Confirm your State's exact due dates and threshold — these are the most frequently amended provisions.
• File the annual return in each State. Maintain the challan trail. Karnataka's annual return is due within 60 days of the financial year end; Maharashtra's Form III-B annual return is due 31 March for the year.
• Run a three-year lookback now. If you have been non-compliant, voluntary registration and payment of arrears with interest is materially cheaper than assessment. Several States operate periodic amnesty windows — check whether one is currently open in your State before paying penalty.
• Add PT to the monthly close checklist. Alongside TDS, PF and ESI. PT non-compliance is almost never deliberate; it is a checklist gap.

FAQ

Our company is registered in Delhi and all employees are in Delhi. Do we need professional tax?
No. Delhi does not levy professional tax. But if you open a branch or put an employee on the rolls of an establishment in a PT State — Karnataka, Maharashtra, Telangana, and others — that State's PT applies from that point, and you need PTEC and PTRC there.

We have PTEC. Isn't that enough?
No. PTEC covers the company's own liability as a person carrying on a trade. PTRC is a separate certificate that authorises and obliges you to deduct PT from employee salaries. A company with employees in a PT State needs both. Holding only PTEC while paying salaries is a live default.

A remote employee works from Rajasthan, which has no PT. Do we still deduct?
Yes, if that employee is on the rolls of an establishment in a PT State. Liability follows the establishment, not the employee's physical location. Deduct at the establishment State's slab.

Can professional tax ever exceed ₹2,500 per person in a year?
No. Article 276(2) of the Constitution caps it at ₹2,500 per person per financial year. Any demand above that figure for a single person for a single year is legally unsustainable. Note the cap is per person, so the company's own PTEC of ₹2,500 and a director's personal enrolment of ₹2,500 are separate liabilities and both are valid.

---

For a compliance audit of your company, visit pvtltd.co